8 things you should know about student loan refinancing

Young female student calculates how to refinance a loan.

Should you consider refinancing your student loans? We answer FAQs.

If you have student loans, you might be looking for ways to lower your monthly payments. Maybe you’re applying for jobs that offer student loan repayment (or forgiveness) as a benefit.

Refinancing your student loans may lower your monthly payments. Refinancing a loan involves taking out a new loan to pay off your existing loan, often at a lower interest rate. Below, Hayes Reed, student loan refinancing product manager at Wells Fargo Bank, answers some common questions about loan refinancing.

Q: Why should I consider refinancing my student loans?
A: Refinancing can offer several benefits. You may be able to:

  • Lower your monthly payments.
  • Reduce your interest rate.
  • Reduce your total number of loan payments and, therefore, the total amount you pay during repayment.

Q: Can you only refinance private student loans? What about federal student loans?
A: Federal student loans offer unique repayment benefits, including income-based repayment options, loan forgiveness for certain professions, and generous forbearance options if you experience financial difficulties. As a result, some lenders refinance only private loans and not federal loans.

If you decide to refinance both your private and federal student loans with a private lender, be sure to carefully consider the federal repayment benefits you might be giving up.

Q: Is student loan refinancing the same as loan consolidation?
A: Lenders sometimes use these terms interchangeably. When you refinance more than one student loan, the loan balances are consolidated (combined) into a single, new loan. At Wells Fargo, our student loan refinancing option is called the Wells Fargo Private ConsolidationSM loan.

Q: Is there a rule of thumb for when it makes sense to refinance student loans — at a certain interest rate difference, for example?
A: There are no fees or points (fees paid directly to the lender at closing in exchange for a reduced interest rate) for refinancing student loans. Refinancing student loans typically makes sense if the new terms (monthly payment, interest rate, and total number of payments) fit your financial situation and goals. Your Wells Fargo Student Loan Consultant can show you how your student loan terms would change if you refinanced.

Q: How could refinancing lower my monthly payments?  
A: You typically repay student loans for 10 to 15 years. However, if you refinance your loans at a lower interest rate or by extending your payoff period up to 20 years, your monthly payments may go down. Just know extending your repayment period can increase the amount of interest you’ll pay over the life of your loan.

Q: If I want to pay off my loans faster by making larger payments, do I need to refinance them?
A: It depends on whether your lender charges a prepayment penalty. At Wells Fargo, there’s no prepayment penalty so you can absolutely make extra or larger monthly student loan payments without refinancing. However, it may make sense to refinance your loans into a shorter repayment period if you can also take advantage of a lower interest rate.

Q: Are there any qualifications for refinancing student loans?
A: Yes. Generally, you need to:

  • Be out of school (to refinance federal student loans).
  • Have a steady income that allows you to afford loan payments.
  • Have a credit score in the mid 600s, at a minimum.

If you can’t meet the last two requirements, you may choose to apply with a qualified cosigner.

Q: Is there anything else I should know about refinancing my student loans?
A: Focus on more than just the monthly payment change. Are you comfortable with the new, refinanced interest rate? Is that rate fixed for the life of your loan or could it change over time?

Also, pay close attention to the repayment terms and total number of payments you’ll make. Your refinanced loan might carry a lower monthly payment than your old one, but you may pay back your loan over a longer period. If so, you might pay more in total loan interest in the long run. Compare your options carefully.

Learn more about student loan consolidation and refinancing with Wells Fargo or call us at 877-315-7723.

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